A lot of people think that an estate tax and an inheritance tax are one and the same, but in fact they are two different things and we would like to clear up the distinctions here.
The estate tax is levied on the entirety of the estate before it is passed along to the heirs. It should be noted that there is a federal estate tax which is applicable in all 50 states. At the present time the maximum rate of the tax is 35% and the exemption amount is $5.12 million.
But in addition to this some states levy an estate tax on the state level, and this would be imposed on top of the federal tax. Connecticut does in fact have a state estate tax, and the exemption amount is $2 million in 2012 with a top rate of 12%.
On the other hand, an inheritance tax is imposed on the amount that the heir to an estate is actually receiving. So after all the estate taxes have been paid there is yet another tax that must be paid by the heirs to the estate on the inheritances that they receive.
It should be noted that Connecticut does not have an inheritance tax. And, in states that do have an inheritance tax some relatives may be exempt from it.
Making sure that you take steps to mitigate your tax exposure is of tantamount importance when you are planning your estate. If you would like to explore tax efficiency strategies with an expert, simply take a moment to arrange for a consultation with a good Hartford estate planning lawyer.